I see Capital One offers an effective 5.3% interest for 90 days on a 10,000 deposit up to 50,000 USD. In relative terms, this is wonderful but after those 90 days, it drops to 1.3%.

There's probably some list of all the bank bonuses and people churning bank accounts to constantly get these elevated interest rates but is it worth it?

The bank can drop the 1.3% interest rate or give stress about the 100usd bonus/10,000 deposit if they see you take your money out too quickly after the bonus clears. This means you must keep your money there for some time longer and thus, your effective interest rate drops.

If somebody is close to retirement, out of work, or a homeowner, I understand the appeal of higher interest rates on cash but for a young traveller with a stable paycheck who loves simplicity, has very low expenses, and will likely get a higher return on indexes because they need much less than the 10k cash required as an emergency fund? It seems to not be worth it.

It certainly can be worth it. The post below shows just how well one can do if they are willing to put forth a bit of effort.
Last year, I kept, on average, around $40k in cash in my emergency fund. I earned $4,800 in interest on this sum while the money was in FDIC insured accounts. I could have earned more than the 12% that I managed but it required some work and I wanted to balance how much I earned with the amount of effort expended.viewtopic.php?f=1&t=315033&p=5255397#p5255397

I guess it all could be much worse. |
They could be warming up my hearse.

I guess it depends for everyone. How much time it will take, how you value your time, what you could do with that time instead, the magnitude of the yield difference compared to lower effort options. I wouldn't chase 20-30 basis points, but 1%? Definitely, if it's as easy as opening a savings account at an online bank. I probably wouldn't do it if it required jumping multiple hoops, like with a lot of checking account bonuses. I suspect it's a very personal decision though and there's no wrong or right answer.

The bank can drop the 1.3% interest rate or give stress about the 100usd bonus/10,000 deposit if they see you take your money out too quickly after the bonus clears. This means you must keep your money there for some time longer and thus, your effective interest rate drops.

If you follow the requirements of the offer, which will be detailed in the fine print, then the bank owes you the promised bonus. There's no stress there, at least for me. The account has to stay open to get the bonus.

12% sounds like some kind of urban legend. It's hard to believe. I'm curious to see any more details on that.

All of one's I see in the linked post's link that are even close to that rate require direct deposits. The Chase account explicitly has fees and then deducts the value of the bonus if the account is closed within 6 months.

Ally seems competitive for a basic account without any extra hoops.

My bonds are all in Wellesley. It's how I feel comfortable holding them.

In my personal opinion, no. That's because in my personal opinion, every deal that was good enough to induce me to change never lasted very long. My experience has been that there are, in fact, many ways to score a couple of hundred dollars in "free money" and most of them really work if you read the rules and conditions carefully and comply with them. It is, apparently, really worth that much to many companies to get you to open a new account, credit card, etc.

But they are essentially one-shot deals and it's difficult to repeat them often enough to generate significant income.

In my case, the deals that I went for didn't stop suddenly, they faded out gradually in sneaky ways. For example, one bank had an upper limit on the amount that earned the exceptional rate; the first $50,000 earned that rate, but if your balance was $51,000, the extra thousand earned 0.10%. As time went on, they would alternate dropping the interest rate a bit, and then dropping the cap a bit. The effect was to tempt me to keep hanging on beyond the point at which it meant much in dollars, because it was a nuisance to close the account and it was still no worse than other banks.

That deal also had one of the weirdest account-opening "gifts" I ever saw. It was a "set" of three somewhat mismatched Corningware crocks, seeming worth thirty bucks or so--except that none of the lids fit. They almost fit. On a good day if you spend some time at it you might even be able to force one on, but they were way too tight. I've always wondered what that was. Slight seconds that were really seconds?

The point is that due to fadeout these are basically one-shot deals for a few hundred dollars. To keep it coming you need to keep opening new accounts. It's a lot of work. It may be legal but it feels dishonest. And banks are not completely stupid, and people who game the system in a really egregious way, e.g. by making ten-cent transactions to fulfill a requirement of ten POS card uses per month, get caught and discover that the bank has given themselves leeway in the fine print to cancel their accounts.

give stress about the 100usd bonus/10,000 deposit if they see you take your money out too quickly after the bonus clears. This means you must keep your money there for some time longer and thus, your effective interest rate drops.

Is this a thing? I'm in the middle of 2 bonuses, my first ever, right now and have no intention of leaving my money in a 0 interest checking account longer than the terms I agreed to.

give stress about the 100usd bonus/10,000 deposit if they see you take your money out too quickly after the bonus clears. This means you must keep your money there for some time longer and thus, your effective interest rate drops.

Is this a thing? I'm in the middle of 2 bonuses, my first ever, right now and have no intention of leaving my money in a 0 interest checking account longer than the terms I agreed to.

If you follow the requirements of the offer, which are detailed in the fine print, then the bank owes you the promised bonus. I have no stress about this. If it makes sense to me to move funds after the required holding period, I will, but I'll keep the account open to get the bonus.

I believe the Chase offer deducts the amount of the bonus if the account is closed within 6 months of opening and it has fees to hold below a certain balance so read the fine print for every offer. This was in the Chase fine print.

For me, it's not worth the effort. Most of my safe allocation is in bonds with a small cash allocation as my emergency fund, so the dollar amount is insignificant. If I kept 5 years expenses in cash then I would reconsider, but I have nothing close to that.

Most of us can probably grab a few hundred a year, even up to a grand or a little more, chasing these things, especially if you move around substantial sums. That number levels out because many companies put restrictions on bonuses for returning customers, either preventing them from receiving a bonus entirely or limiting bonuses to customer who haven’t had specific products before or within a certain time frame. Sometimes the good bonuses are for products with monthly fees, which will reduce your return overall or force you to lock up more than you intended in minimum balances to avoid the fees, which means you lose out in interest.

If you have never played the game then it is certainly worth grabbing some of these nice incentives, but understand it won’t last forever and isn’t always repeatable. And if you hit it too hard, you end up on the wrong side of Chexsystems reports (banks don’t like to see a ton of inquiries from opening deposit accounts because they figure you’re a gamer) and that can lead to some unintended consequences.

I’ve managed about $3-500 a year for the past decade in these types of things. Better than a poke in the eye but it certainly is not life changing.

You can answer this question yourself by calculating how many more dollars you will have in a year by finding this yield or that yield for your money along with evaluating what is involved to get that money.

Some people would spend time and effort to gain $100/year (or whatever amount is available) and other people would not risk straining their back to pick up a $20 bill on the sidewalk.

It would certainly seem that moving 1% of your net assets for 1% more yield (or whatever it is) must be more about how you feel about it than about any objective difference it will make.

You also have to take into account the "cost" of having places get their fishhooks into your brain. This, of course, is why they do it.

A few years ago I was in the process of booking reservations at Walt Disney World Resort, first time I'd done it, and stressing for an hour over park-hopping and Magic Bands and FastPass+ and whether it was worth it to get a hotel that was on the monorail instead of the bus route, etc. And just as I was finally in the checkout process, a popup appeared for a Chase/Disney affinity card. $50/year fee charged immediately, and a $200 "statement credit" that would appear as soon as I put the first charge on the card, must click now to accept the offer. Since I knew we were going anyway, and would be charging a ton of stuff anyway, since since we pay our balance monthly so finance charges wouldn't matter, it seemed like a no-brainer to go for it. It all worked precisely as advertised. I used it on the trip, got the credit, came out $150 ahead, all on the up-and-up.

Except.

The card was so darned cute, and I'd gotten into the habit of using it while I was at Disney, and I just... didn't... feel like canceling it. My plan had been to cancel at at the end of the trip but I just kept stalling and stalling. Eventually I realized that if I didn't do something soon, the next $50 annual fee would hit, so I cancelled.

From a purely rational point of view I was ahead, but I was really surprised and impressed by just how difficult it was for me to let go of it. And of course while I had it, I kept receiving offers, both online and in the mail, for various Disney-related promotions, etc.

And of course it just felt so "right" to be buying stuff at Walt Disney World using that cute card with Donald, Mickey, and Goofy on it, so it kept me in a kind of warm, happy, relaxed, free-spending trance. Did I buy more than I would have bought if I'd used an ugly credit card? Oh, sure, you would never have done that--but I'm pretty sure I did.

Last edited by nisiprius on Fri May 22, 2020 9:29 am, edited 1 time in total.